I think that, in terms of social value, the point of diminishing returns for market making and liquidity has long since passed, especially wrt social value for Avg. Joes & Janes.
I def. don't hold Facebook etc in a much higher regard here, but if we're talking about brain drain from socially useful fields, I don't think anyone can credibly argue that finance (esp. HFT et al) provides any meaningful social value.
In fact I'll go one further: by sucking up the best and brightest, high finance is doing a net harm to more socially useful sectors.
I'm not being prescriptive wrt what choices people should make, btw, just speaking in terms of social good.
HFT firms are make money by taking a spread, which is effectively the cost of making a single trade. As they compete and get better and better at there jobs, this spread well be reduced, the amount of money available to pay for the best and brightest programmers will come down, and they'll suck fewer of them away from other parts of the economy.
The point being, the further they go past this 'point of diminishing returns', the less money they can possibly make. To the extent that HFT is a zero sum game, there will always be a limit on how much money they can spend.
(I believe but cannot prove that this limiting effect has already started, HFT firms are consolidating and making thinner margins than they used to)
That's a good point, but would that happen quickly enough to undo whatever brain drain problems the industry creates?
Nearly all hedge funds still take 2/20 for example, and their returns have been questionable for a decade, so idk we have reason to have faith in high finance's ability to self correct.
Every time someone brings up social good, I keep wanting to know what that means. Can we have a truly objective definition of 'social good'? Or is it entirely dependent on the individual person's definition of what that means to them.
I agree that it's not a sufficiently precise term, but I think it's obtuse to suggest it's so ambiguous as to be deceptive or obstructive to discussion.
How's about: an act that is socially valuable has benefits, immediate or otherwise, realized by parties that aren't directly involved in the transaction.
Eg, a blackjack dealer's labor probably only matters to her players and her boss, but a cancer researcher impacts well beyond that. Both can be lucrative, but one is clearly more socially valuable.
I def. don't hold Facebook etc in a much higher regard here, but if we're talking about brain drain from socially useful fields, I don't think anyone can credibly argue that finance (esp. HFT et al) provides any meaningful social value.
In fact I'll go one further: by sucking up the best and brightest, high finance is doing a net harm to more socially useful sectors.
I'm not being prescriptive wrt what choices people should make, btw, just speaking in terms of social good.